Lira on four-day skid as Ankara struggles with confidence game

Turkey’s lira fell 5 per cent on Thursday, extending a four-day slide and eating into big gains last week, as the government struggled to convince savers to ignore the volatility even as worries persisted over surging inflation and unorthodox rate cuts.

The currency has shed as much as 20 per cent in four trading sessions. That reversed a more than 50 per cent rally over the previous five days, which was triggered by a new state scheme to protect lira deposits from depreciation losses versus hard currencies.

The lira dipped as far as 13.4 to the dollar and edged back to 13 by 0718 GMT. It has swung from 18.4 to 10.25 in the last two weeks, a dizzying ride for Turks who have seen their household budgets upended and savings depleted.

The fast-moving currency crisis was set off by a series of aggressive interest rate cuts beginning in September that were sought by President Tayyip Erdogan under his “new economic programme” focused on exports and credit.

Economists and opposition lawmakers called the policy easing reckless given inflation had climbed above 21 per cent, and is expected to soar beyond 30 per cent this month and in the months ahead, due primarily to the sharp lira depreciation.

Finance Minister Nureddin Nebati – whom Erdogan appointed earlier this month – said late on Wednesday the record volatility was not worrying.

He also said there were no state interventions to sell dollars and boost the lira last week – despite data showing that the central bank’s foreign reserves tumbled in what bankers said signaled state-backed market support.

Under the scheme unveiled by Erdogan, the Treasury or central bank would cover the difference between deposit rates and the FX rate for lira converted into the new instrument, which is meant to reverse a tide of dollarization.

Many economists warn that if the lira continues to depreciate, the scheme could stoke inflation and add to the state’s fiscal burden.

Nebati said on broadcaster CNN Turk that 59.8 billion lira ($4.60 billion) were in the protected deposits as of Wednesday.